In an action seeking reinsurance for trucking risks, in which the reinsurer alleged that the reinsurance had been placed in breach of various binding guidelines and agreements, a magistrate judge granted, in part, a motion to compel the reinsurer to produce documents relating to its underwriting process and declination of other trucking risks. The Court believed that the documents were discoverable to rebut the reinsurer's position. Scottsdale Insurance v. American Re-Insurance Co., 8:06-cv-00016 (D. Neb., Feb. 2, 2007)
Arbitration / Court Decisions
Silence Deemed Insufficient to Preclude Aggregate Liability
In a matter that is difficult to describe briefly, an arbitrator has entered an award in an interesting reinsurance claims issue, and the award has been confirmed. Gerling Global Reinsurance Corporation (“Gerling”) issued a certificate of facultative reinsurance to Employers’ Surplus Lines Insurance (“Employers”) reinsuring an Excess Umbrella policy providing for $5,000,000 per occurrence and aggregate losses. When Gerling refused to pay its pro rata share of certain indemnity and defense costs, Employers demanded arbitration to enforce the certificate. Gerling argued that a non-concurrency existed between the facultative certificate and the umbrella policy with regard to the aggregate liability and liability for defense costs. Gerling argued that the absence of the word “aggregate” in various sections of the certificate precluded consideration of aggregate limits of liability and that its reinsurance limits applied strictly on a per-occurrence basis. Gerling also argued that it was not required to reimburse Employers for the defense costs associated with the settlement because the “follow the settlements” clause in the certificate was subject to the condition that an indemnity payment must be made on a specific claim before any defense costs attached. Gerling argued that this language was non-concurrent with Employers’ ultimate net loss liability theory. While the arbitrator acknowledged that the presumption of concurrency is “not absolute and can be overridden by clear language of limitation in the certificate,” this was not such a case. The arbitrator concluded that the absence of the word “aggregate” was insufficient to preclude liability, stating that “silence, as an expression of limitation, strains credulity and is insufficient to preclude aggregate liability.” The arbitrator also noted Gerling’s failure to use any of the methods available to it to limit aggregate liability, such as including the phrase “Nil Aggregate” in the certificate or by adding an endorsement. With respect to liability for defense costs, the arbitrator concluded that Gerling misinterpreted the “follow the settlements” clause and that the concept of “ultimate net loss” contained in the Employers’ policy was entitled to the presumption of concurrence. As such, Gerling was responsible for its share of the defense costs. Employers’ Surplus Lines Insurance Co. v. Global Reinsurance Corp., Case No. 07-30 (USDC S.D.N.Y. Jan. 11, 2007).
Appellate opinions confirm arbitration awards
Three recent appellate opinions confirmed arbitration awards:
- The Eighth Circuit reversed a District Court Order, remanding for confirmation of an arbitration award. The District Court had vacated the award on the basis that the Panel's finding that California law applied, and its dismissal of a claim under the Minnesota Franchise Act, violated a fundamental public policy of Minnesota. The Court of Appeals reversed, finding that the applicable standards under the California and Minnesota franchise statutes were virtually identical. Twin Cities Galleries, LLC v. Media Arts Group, Inc., Case No. 06-1777 (8th Cir. Feb. 9, 2007).
- On January 27, 2006, the Sixth Circuit entered an opinion affirming the decision of a District Court vacating an arbitration award on the basis that the award did not draw its essence from an applicable collective bargaining agreement. However, in an en banc opinion, the Court has overruled the appellate panel, reversing and remanding for the entry of an Order confirming the arbitration award. The basis for the reversal rested upon findings that: (1) the arbitrator was not charged with fraud or dishonesty in making the award; (2) the arbitrator was arguably construing the contract in the award; and (3) the party challenging the award showed nothing more than an error or a “serious error” in the arbitrator's interpretation of the contract. Michigan Family Resources, Inc. v. Service Employees International Union, Case No. 04-2564 (6th Cir. Jan. 26, 2007).
- The Appellate Division of the New Jersey Superior Court has affirmed summary judgment against an arbitration claimant in a case arising out of an automobile accident. An arbitrator dismissed the claim based upon a failure of proof and failure to prove causation. An appeal was denied under the applicable appeal rules of the American Arbitration Association. The claimant then filed a Complaint in Court, contending that the respondent in the arbitration had committed fraud. The court granted summary judgment, finding that to be potentially viable, a fraud claim must allege fraud on the part of the arbitrator rather than a party, and that the Complaint was not timely filed. The appellate panel affirmed. Brown v. CSC Insurance Services, Docket No. A-2283-05T5 (Jan. 22, 2007).
UK Court denies challenge to judgments against reinsurance intermediaries
The UK Queen's Bench Division of the Commercial Court has denied applications to vacate prior judgments in an action brought by a reinsured against several defendants which served as reinsurance intermediaries under two binders involving short tail property and contingency risks and personal accident risks. Prior liability judgments had found that the intermediary group had fraudulently abused the binders by placing risks through the binders which were not authorized, and by signing an addenda to the binders, without authority, that provided the intermediaries an extra 40% commission on the first 12 months gross premium. Prior judgments had rescinded the binders and awarded damages for fraud and conspiracy totaling approximately £17,000,000. The opinion holds that liability judgments against several of the defendants were proper. R & V Versicherung AG v. Risk Insurance and Reinsurance Solutions SA, [2007] EWHC 79 (Comm. Jan. 29, 2007).
Broker Not Liable for Contingent Expenses Resulting from Insurer’s Downgraded Financial Rating
Aon Risk is a commercial insurance broker that served as the broker of record for Synagro, a Texas-based waste management company. Aon Risk obtained insurance from Reliance National Indemnity Company for Synagro in 1998 and 1999. Synagro filed suit against Aon Risk in 2001, asserting that Aon was responsible for contingent expenses that Synagro might incur as a result of Reliance’s downgraded financial rating and its liquidation. A jury found that Aon Risk was not responsible for Synagro’s alleged damages, and a judgment was entered in favor of Aon.
Aon Risk filed a counterclaim against Synagro seeking payment for the cost of the insurance plus its commission. A Texas Court of Appeals recently affirmed an award of $316,000 to Aon Risk, finding that there was sufficient evidence for a jury to conclude that Synagro breached its contract with Aon Risk. Synagro of Texas-CDR v. Aon Risk Services, Case No. 13-04-663 (Tex. Ct. App. Jan. 4, 2007).